By JUDD MATSUNAGA, Esq.
When I first started doing living trusts in the ’90s, my primary focus was helping Japanese American families avoid probate court. However, since then, my primary focus has shifted more towards helping parents divide their estates without dividing their families. After all, the courts are full of brothers and sisters battling it out over Mom and Dad’s estate.
A major family squabble that divides your family apart is probably not what you want to be remembered for. Most of us would like to be remembered for who we were and who we loved, not for what we had. So, if you have any assets that you’ve accumulated during your lifetime that you plan to leave to your family upon your death, it’s up to you to figure out who gets what.
Unfortunately, sibling disputes often erupt after a parent dies (even in the Japanese American community). Sibling disputes can result in lengthy and expensive legal actions. Perhaps worse, the pain, bitterness and resentment from this kind of division may never go away. However, with some careful planning by the parents, sibling disputes and family division can be avoided.
“I love all my children equally,” you might say. So the simplest solution, according to many experts, might be to divide whatever you have equally among your children. During their lifetime, parents can make gifts or directly pay for things like education or family trips. But in death, it’s important to think about keeping things equal, because you won’t be around to explain things after you’re gone.
“At the estate level, everything needs to be absolutely equitable; otherwise, we sow the seeds of ‘psychological cancer cells,’” says Lee Hausner, psychologist and author of “Children of Paradise: Successful Parenting for Prosperous Families.” (Source: AARP,“Having an Estate Plan Can Help Split Assets Without Dividing Siblings,” May 13, 2020) Hausner quotes Washington, D.C., resident Jonathan Moran, who said, “Money and tangible things can definitely bring out the ugly in people. I barely speak to them (his siblings) now.”
Hausner cautions, “Parents should never divide an indivisible asset in hopes that it will bring their heirs together. Give the house, the land or the business to just one child and make up the difference with a monetary share for the others. Alternatively, stipulate that the asset be sold, and the proceeds divided evenly. That way, the one who really wants the asset can buy the others out.”
Unless there is some real reason why the estate plan should not be equal, you create the possibility of chaos in the family. It’s easy for things to devolve into “Mom loved you more.” One possible exception to the rule of an equal split is if there’s an estranged child that you want to disinherit. This is legally permissible but to avoid legal challenges by the disinherited child you should seek legal advice.
But is equal the same thing as fair? That decision can be particularly fraught if one of your children has special needs, or another has a gambling or drug addiction, or you don’t trust one of your daughters-in-law. Although the standard advice among experts is to divide your estate equally between your children, there are many other reasons why parents might opt for another option. Your estate planning attorney should have some possible solutions.
For example, you might say, “An equal split might have been fair a generation or two ago when parents died in their 60s and 70s. But now, parents are living well into their 90s and even 100s. An equal split doesn’t seem quite fair when the vast majority of the caretaking responsibility (especially those latter years) falls on one child.” You might be right.
According to a study from Merrill Lynch Bank of America/Age Wave, among those planning to leave an inheritance, parents with more than one kid are open to leaving different sums to each child, depending on the situation. In fact, the research found, two-thirds of Americans believe that under certain circumstances, an uneven split is the right way to go. (Source: www.considerable.com/money/inheritance. Sept. 24, 2020)
Other studies have echoed this trend. A 2015 academic paper published by IZA Institute for Labor Economics, based on data from a large government study, found that among Americans at least 50 years old who had a will, the percentage who left unequal inheritances to their children had more than doubled from 16% in 1995 to 35% in 2010.
A survey by Ameriprise, for example, found that among siblings who fought about money as adults, 70% of the fights involved issues with parents such as how an inheritance gets divided. And a recent survey from BMO Wealth Management reported that about 40% of respondents who had received unequal inheritances felt the distribution among the family was not “fair.”
“With unequal inheritances you run the risk of causing sibling animosity,” says Daniel Rutenberg, a Vienna, Va., attorney who specializes in estate planning. “If you go this route you need to manage expectations, so you don’t have one sibling blaming another.”
“Explaining your rationale is very important to help avoid misunderstandings and misperceptions.” — Kevin Hindman, national trust executive at Bank of America Merrill Lynch.
In the Merrill Lynch Bank of America/Age Wave study, two-thirds said a child who steps in as primary caregiver for an aging mom or dad deserves to inherit more than other siblings. Also, nearly one in four of those surveyed said a child who has children of his or her own deserves more money than a child who does not have kids.
According to the article, parents may also feel that a child with the greater need is more deserving, say, if one is a banker and the other a public-school teacher. Or you may have a child who has greater ties to a family business. Or you may be planning for the care of a child with special needs. Trouble is, this kind of division can lead to ugly sibling fights, jealousy and meltdowns.
Regardless of how you decide to split your assets, if you feel you have sound reasoning for not dividing your estate equally, sit down with your kids and tell them what you’re doing and why. “Explaining your rationale is very important to help avoid misunderstandings and misperceptions,” says Kevin Hindman, national trust executive at Bank of America Merrill Lynch. (Source: www.considerable.com/money/inheritance. Sept. 24, 2020)
Talk to your loved ones about estate planning. This is never an easy conversation, but it’s a necessary one. Talk to everyone about what they feel they need and deserve. I believe it’s the responsibility of every parent to make sure the estate is divided in an equitable way. And one of the best ways to do that is family communication to make sure there are no surprises when it’s too late to explain.
If you have a family meeting, be sure to not let emotions get in the way. Quite often, decades-old family arguments come up and 50-year-old sons and daughters are 12 years old again. If possible, stick to the matter at hand. Parents usually know whether their children are likely to fight over their inheritance and should take action to prevent conflicts after their death.
When there is unresolvable disagreement, think about bringing in an outside professional, whether a banker, financial planner or lawyer. The third-party expert acts as the rational person in the room who doesn’t have a dog in the fight. Introduce the family to your adviser so he or she can get a realistic picture of your situation and help outline, mediate and document a family’s estate planning conversations.
Use a trust to specify property dispositions after death. A parent can make a revocable trust that can be changed at any time up to death, assuming the parent remains competent. Review the trust from time to time. Feelings among siblings and financial circumstances can change, and plans should be revised accordingly. Consult with a lawyer to decide the best course of action.
In conclusion, if you’re getting up in age and planning an unequal division of assets, don’t wait too long to talk about big issues with your children. You need to be clear-headed at the time of the family meeting. That way, when the time comes, no child can say “Mom or Dad were unduly influenced” by the primary caregiving child. That may lead to expensive litigation.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.